Telenor Said to Hold Talks to Merge India Unit With Tata

Telenor ASA (TEL), the Nordic region’s biggest phone operator, is in talks with Tata Teleservices Ltd. to combine their operations in India, three people with direct knowledge of the matter said.

Japan’s NTT DoCoMo Inc. (9437), which owns a 26 percent stake in Tata Teleservices, is likely to remain a shareholder in the merged entity, said one person, who asked not to be identified because the information is private. Any deal will depend on new takeover rules currently being considered by India’s telecom regulator, the people said.

The combination would create India’s fourth-largest operator by users and may give Telenor access to airwaves in all areas of the world’s second-biggest mobile phone market. Mobile- phone companies including Telenor, which had its spectrum canceled, and Tata Teleservices are struggling to revive growth in a nation where 13 competitors have driven call rates to a penny a minute.

“Some type of merger there would help, if it’s allowed, as they could utilize their size to get a better position in the market,” said Thomas Nielsen, an analyst at Pareto Securities ASA in Oslo. “India has been a challenging market for Telenor for years with tough pricing competition and a more difficult regulatory environment than the carrier may have been hoping for.”

Telenor shares fell 1.3 percent to 114.8 kroner at the close in Oslo yesterday, paring this year’s gain to 17 percent.

Russian Snag

Telenor agreed to buy a 60 percent stake in India’s Unitech (UT) Wireless for $1.07 billion four years ago before getting embroiled in a dispute with partner Unitech Ltd.

Telenor’s international expansion has also faced snags in Russia, where it has a 43 percent holding in VimpelCom Ltd. (VIP) Russia, which didn’t want Telenor to be the largest owner, agreed to withdraw legal claims against Telenor last week after VimpelCom co-owner Altimo increased its stake in the Russian mobile carrier to 47.9 percent.

Running the combined operation in India may be tough as the management will have to deal with three owners, according to Abhishek Anand, an analyst at Centrum Broking Pvt. in Mumbai.

“Telenor Group never comments on rumors or speculation,” Telenor spokesman Glenn Mandelid wrote in an e-mail. Tata Teleservices doesn’t comment on market speculation, the company said in an e-mail.

“We are going to maintain our stake for the time being,” Junpei Toya, a spokesman for NTT DoCoMo, said by telephone. Toya declined to comment on the prospect of a merger between Tata Teleservices and Telenor.

Under an agreement, Telenor may have the option of buying out the Japanese company in a few years, one person said.

New Rules

NTT DoCoMo paid 130.7 billion rupees ($2.4 billion) for its stake in Tata Teleservices in 2009, according to data compiled by Bloomberg. The two companies sell mobile-phone services under the Tata DOCOMO brand.

The nature of any agreement between the companies depends on whether new guidelines in India require a merged entity to return startup spectrum, or the airwaves used for mobile communications, to the government, the people said.

The new rules will be placed before the Cabinet for approval, Telecommunications Minister Kapil Sibal said on Nov. 1, without specifying when the government may take a decision.

Tata Teleservices, part of India’s biggest business group, had 78.4 million mobile connections and Uninor, Telenor’s Indian brand, had 42.2 million connections at the end of September, according to data from the nation’s telecommunications regulator.

The company’s venture with its former partner, Unitech, a New Delhi-based real estate developer, was terminated after its spectrum licenses became invalid on Sept. 7. The licenses were revoked by India’s highest court over a corruption scandal.